Elon Musk’s recent warning about the potential negative impact of high-interest rates on electric vehicle (EV) demand sent shockwaves through the EV sector, causing a significant drop in share prices.
Many analysts are now questioning whether Tesla, the world’s most valuable automaker, can sustain the remarkable growth that has distinguished it from other automakers for years.
As a result of Musk’s comments, Tesla’s market value faced a potential loss of nearly $50 billion. ]
This downturn in sentiment rippled across the industry, affecting companies like Rivian Automotive, Lucid Group, and Fisker, which saw their shares fall by as much as 2.4%.
Legacy automakers, Ford and General Motors, also experienced declines of 1.1% and 0.4%, respectively.
Musk’s remarks marked a notable shift in tone from his previous assertion that Tesla was “recession-resilient.”
This change in perception occurred despite Tesla’s efforts to boost sales through significant price cuts. However, the company still missed revenue estimates, recording its largest miss in over three years.
Tesla faces the challenge of reducing prices further in the current quarter to meet its annual delivery target of 1.8 million vehicles.
This is particularly concerning given that its gross margin contracted from 25.1% to 17.9% between July and September compared to the previous year.
Analysts are beginning to doubt whether Tesla can maintain a sustained profitability advantage in the fiercely competitive auto industry.
As a result, ten analysts have lowered their price targets for Tesla, bringing the median view down to $260, according to LSEG data.
Tesla’s stock price fell by 5.2% to $230.12 in response to these developments, potentially reaching its lowest level since July 20, following the second-quarter results announcement.
Despite doubling in value in 2023 due to optimism about Tesla’s resilience in an uncertain economy and its self-driving initiatives, the stock is now trading at approximately 59 times its 12-month forward earnings estimates, in stark contrast to Ford’s 6.3 times and General Motors’ 4.2 times.
Critics argue that Tesla’s current market valuation assumes that all the numerous EVs scheduled for launch by 2025 will fail, a belief that may not be grounded in reality.
Craig Irwin, a senior research analyst at Roth Capital, emphasized that Tesla operates within a competitive landscape and should not be viewed in isolation.